1. Business Organization

2. General Information
Business firm—an organization that brings together the factors of production for the purpose of producing or distributing goods and services
80% of total production comes from private businesses
Firms must pass the market test
Specialization and division of labor
Risk
Can group businesses by industry or legal form of organization

3. Sole Proprietorship
Definition Business firm owned by a single individual or married couple who makes all of the decisions and receives all of the profits
Most common type nearly 80% of all businesses
Represent about 6% of business receipts
Most businesses start as sole proprietorships

4. Advantages of Sole Proprietorships
Easy and inexpensive to create
Owner receives all profit
Owner has complete discretion
Owner personally knows customers and employees
Minimal government regulation
Usually pays less income tax than other business forms

5. Disadvantages of Sole Proprietorships
Unlimited liability
Limited fundraising ability
Limited life
Owner may lack special skills and abilities

6. How to Set Up A Sole Proprietorship http://www. citmedialaw
Prepare a business plan
Decide on a business name and register it
Obtain local licenses
Business license-legal document that allows one to operate a business
Determine tax and regulatory obligations and apply for EIN
Open bank account
Other considerations
Zoning laws—where one can legally locate a business

7. Partnerships Form of business organization that is
collectively owned by two
or more people who jointly
make business decisions,
share the profits and bear financial responsibility for the loss
Only about 9% of businesses, about 4% of all business receipts

8. Partnerships General Partners Limited Partners
Limited Liability Partnership
Uniform Partnership Act
Joint Venture
Strategic Alliance

9. Advantages of Partnerships
Inexpensive/easy to create
General partners have complete control
Skills/abilities can be pooled
Improved credit position
Less tax burden than corporations
Elimination of competition
Continuity of business
Profits split between partners

10. Disadvantages of Partnerships
Unlimited liability
Partners must share profits
Disagreements among partners
Each partner is bound by the contracts of the others
If partner dies, partnership ends
Difficulty withdrawing from partnership

11. Making a Partnership Work
Partners should….
Share business responsibilities
Put everything in writing
Always be honest about how the business is doing
Establish a partnership agreement in advance to establish guidelines about profit sharing, business responsibilities, and what happens if a partner dies/wants to quit

12. Corporations Businesses that are registered or chartered by a state
Roughly 20% of firms, but account for 90% of business receipt
Articles of incorporation a written application requesting permission to form a corporation
Charter the legal authorization to organize a business as a corporation

13. Corporations Closely Held Corporation limited number of shareholders
Publicly Held Corporation stock owned by members of the general public and openly traded
Multinational Corporation firm managed from one country, but derives roughly 25% of its revenue from operations outside of its home country
Conglomerate corporation made up of several different firms that supply diverse products (Hyundai)

14. Corporate Structure Corporate Structure Video

15. Advantages of Incorporation
Fundraising ability
Limited liability
Unlimited life
Specialized management
Risks of business are spread among many owners

16. Disadvantages of Incorporation
More difficult/expensive to start
Owners have less direct control
Double taxation (profits and then as shareholder’s dividend income)
Limited to activities stated in articles of incorporation

17. Financing a Corporation
Bonds certificate stating the amount the corporation has borrowed from the holder of the bond and the term of repayment
Stockshare of ownership in a corporation
Common stockgives owners voting rights, capital appreciation, dividends (quarterly)
Preferred stock guaranteed dividends and first to be paid dividends
Explain startup money for most proprie

18. Advantages of Multinationals
Gaining a strong foothold into the international market (volume)
Ability to take advantage of cheaper factor, location and distribution costs
Tax incentives
Access to new technologies and methodsresearch and development

19. Disadvantages of Multinationals
Trade restrictions
Taxes or tariffs imposed on imports from other countries
Limited quantities (quotas) of imports
Management problems

20. Comparison Sole Proprietorship Partnership Corporation Start-Up Costs
Liability
Continuity of Business
Control of Business
Distribution of Profits
Transfer of Interest

21. Business Franchise
The right to sell a good or service within an exclusive market
Franchise royalties: money paid by the franchisee to the franchisor to cover the franchisor’s overhead costs (education, training, branding etc.)

22. Advantages of Franchises
High likelihood of success given name recognition.
Franchisee seen as less risky of a borrower
High level of training and support provided by franchise company
Franchise company provides national level advertising (franchisee avoids some of this cost)

23. Disadvantages of Franchises
Can be costly to implement depending on royalty payments established by franchise agreement
Limited creativity in effort to maintain brand.
Attention to detail
a must.

24. Other Organizations Cooperative Consumer Cooperative
Service Cooperative
Producer Cooperative
Nonprofit Organization
Professional Organization

25. Mergers

26. Mergers
Types
Horizontal
Vertical
Conglomerate

27. The Federal Trade Commission (FTC)
Established in 1914
Evaluates potential mergers
Identifies anti-competitive behavior
Promotes competition in key industries
Provides information to consumers

28. Competition Wealth of Nations
Free markets guided through competition in a way that individuals, acting in their self interest, will be led to achieve what is best for society
Economic efficiency if waste occurs, firm loses part of profit
Firms do not make excessive profit
Consumers benefit from lower prices and higher quality